Demotion

If a demotion involves a significant reduction in duties or remuneration, it may constitute a 'dismissal', even if the person demoted remains employed by the employer.[1]

The employment contract may be repudiated by the employer when an employee is demoted, without consent, and suffers a significant reduction in pay[2] If the repudiation is accepted by the employee, either expressly or through conduct, the contract is terminated.[3] If the demoted employee remains in employment after accepting the repudiation they would be under a new contract of employment.[4]

However, a demoted employee may remain employed in the demoted position without agreeing to the demotion, that is, under protest or for financial or similar reasons.[5]

If the employee's contract or industrial instrument contains an express term allowing demotion without termination then any demotion will not amount to a termination.[6]

Demotion a dismissal

Significant reduction in remuneration

Johnson v Zehut Pty Limited T/A URBRANDS [2014] FWC 7496 (Boulton J, 10 November 2014).

The employee had worked for a clothing retailer for over 12 years, in a variety of roles including National Sales Manager and National Operations Manager. She was asked to manage a store that was performing poorly and agreed on the basis of the maintenance of her then current salary package.

Within a year the company sought to have the employee agree to a change in the terms of her contract of employment, equivalent to a reduction of over $30,000 per year. When the employee did not accept the change, the company treated her refusal to accept the new terms and conditions of employment as a resignation.

The Fair Work Commission concluded that the actions of the company brought the employment relationship to an end, and found that the applicant was dismissed at the initiative of the employer. It was found that there was no valid reason for the dismissal and the termination of the employee's employment was harsh, unjust or unreasonable.

Significant reduction in remuneration and duties

FLSmidth Pty Limited T/A FLSmidth Pty Limited [2018] FWC 6695 (Saunders C, 29 October 2018).

The applicant was demoted from his position of Service Supervisor to that of Mechanical Service Technician – Experienced. The applicant remained employed by the respondent but in a different role with reduced responsibilities and remuneration. The applicant made an application for unfair dismissal. The respondent made a jurisdictional objection to that application on the basis that the applicant had not been dismissed.

The demotion resulted in a reduction of $4.05 per hour to the applicant’s base hourly rate of pay from $43.50 to $39.45, a reduction of 9.3%. In addition, the reduction in the base hourly rate of pay reduced the applicant's hourly overtime rate of pay from $53.50 to $49.45 per hour, which is material in circumstances where the applicant performed about six hours of overtime a week. The reduction in the applicant's rate of pay also reduced the superannuation contributions the respondent is required to make. The Commission was satisfied that the applicant's demotion, which resulted in a 9.3% reduction in his base hourly rate of pay and other consequential reductions in his entitlements, has involved a significant reduction in his remuneration.

In his role of Service Supervisor the applicant's duties were of a supervisory and organisational nature, he spent most of his time in the office or on site and was responsible for the supervision of about eight technicians. As a result of his demotion, the applicant was no longer responsible for the supervision of other FLS employees, he had no direct contact with clients and was now in the workshop working 'on the tools'. The Commission was satisfied that the applicant's demotion involved a significant reduction in his duties.

The Commission found that the applicant's demotion in his employment with constituted a dismissal within the meaning of s.386 of the Fair Work Act. The respondent's jurisdictional objection was rejected.